After powering equities markets to new heights in 2023 and 2024, the Magnificent Seven club of stocks has tumbled down to earth in the first quarter of 2025. These stocks have lost trillions of dollars in valuation, dragging the Nasdaq composite into correction territory (-10%) and pulling the S&P 500 down 5% for the quarter.
The Magnificent Seven together account for around 30% of the S&P 500’s value and 40% of Nasdaq’s value. We have seen some divergence in the performance of these AI-themed, mega-capitalisation stocks over the quarter, but all, other than Meta, are significantly down from their highs.
However, with two exceptions, these stocks are still up from a year ago:
| Stock | Performance Q1 2025 | Performance over a year |
| Alphabet | -18% | -0.2% |
| Amazon | -13.3% | +5.1% |
| Apple | -11.3% | +30.6% |
| Meta | -1.5% | +17.3% |
| Microsoft | -11.9% | -11.6% |
| Nvidia | -20.30% | +19.9% |
| Tesla | -35.8% | +47.9% |
Like the broader equity market, the Magnificent Seven stocks have endured a difficult quarter because of US President Donald Trump’s chaotic approach to the economy. Fears about stagflation taking hold in the US and trading partners retaliating against US tariffs via actions against the Magnificent Seven have stoked uncertainty.
These stocks were already vulnerable to correction because many investors have questioned whether the hype around AI is overblown and if they are overvalued. The rapid advances the Chinese tech sector has made in AI has also led investors to question how much of a competitive moat the Magnificent Seven actually have.
A technology breakthrough from Chinese startup, DeepSeek, was a catalyst for one of the Magnificent Seven’s legs down earlier this year. In addition, there are some questions about how quickly the capital allocated to data centres will start to produce profits for AI-focused companies.
It is difficult to forecast whether we will see continued and sharper correction for the Magnificent Seven stocks or whether they will bounce back as quickly as they did after the downturn in 2022. However, we believe that, under current market conditions, it will be earnings that will, to a large extent, dictate their fortunes.
Diverse companies, diverging fortunes
It would not be surprising if we had to see the fortunes of these seven giants diverge in the months ahead, depending on their actual earnings and earnings outlooks. While the label creates the illusion of a coherent bloc, the Magnificent Seven companies operate in different industries and have divergent business models, risks, and strengths.
Microsoft and Apple, the two largest, are worth a combined $6 trillion. They have a portfolio of both mature and emerging businesses that should position them to weather market downturns and reap rewards from the AI revolution. They also have predictable earnings and dividend histories that should stand them in good stead in times of market volatility.
Amazon has a similarly mixed portfolio, with its retail business subject to consumer sentiment and its cloud business primed to benefit significantly through the increased adoption of AI. Nvidia’s fare is closely tied to AI and GPU demand. Meanwhile, Meta and especially Tesla are more volatile, with earnings tied to expansion efforts and investment-heavy strategies.
While investors might be concerned about whether their share price momentum has eclipsed their potential earnings growth, each of the seven is a dominant force in its respective industry, whether in cloud computing, e-commerce, social media or EVs.
Each has global reach, which should help shield them from regionalised market downturns. Their proven ability to generate cash flow and their cash reserves gives them a competitive edge in innovation and acquisitions. By historical standards and compared to the S&P 500, the valuations of six of the seven seem high but not extravagant.
Tesla is the outlier with a P:E of 130, compared to P:E ratios ranging between 20 and 35 for the others in the Magnificent Seven club. This company has an extremely volatile trading history and a valuation based on stratospheric expectations for its future performance in industries such as advanced robots and autonomous taxies. It’s worth noting that Tesla is no longer one of the seven biggest stocks on the S&P 500 – it has surrendered its spot to Berkshire Hathaway, a stock with a record of outperformance during downturns.
The earnings season test
We are now entering the all-important earnings season for the first quarter, where we will see how well these seven companies’ earnings are holding up in adverse market conditions. Given the current environment of uncertain trade and economic policy, we can expect these stocks to remain volatile for the foreseeable future.
However, there are two points worth making to any investor concerned about the outlook for the Magnificent Seven. Firstly, we can expect the stocks that dominate the indices by market capitalisation to change over time. Indeed, Microsoft is the only top 10 stock from 2003 to still rank among the largest companies on the indices. ETFs that track indexes like the MSCI World enable investors to capture growth even as capitalism’s natural process of creative destruction creates new winners and losers.
Secondly, we have seen that these companies have relatively volatile performances and are even more exposed to market sentiment than the wider index. While they took a beating during 2022, they rebounded quickly in a risk-on environment in 2023 and soared as all things AI became the new craze. And of course, these stocks will remain particularly sensitive to interest rates, inflation, and other macroeconomic indicators.
*See our separate article on why the current challenges for the Magnificent Seven and the wider market will put quality fund managers to the test.
